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Privatised roads

Here are some libertarian ideas on privatising roads. Roads would be ‘privatised’ like ‘bubblegum’ and ‘beer’ according to the author.  It is difficult to understand how network externality effects would be catered for or how the local monopoly aspects of having what would inevitably – given the subadditivity of the costs – one supplier connecting many nodes.  I don’t mention community service obligations since I assume they lie outside the libertarian choice set but I assume even libertarians want effective competitive and roads that connect with each one and other.

There are serious issues in making road construction more efficient but I wonder if this lot are doing much more than airing their ideological priors.  I set out some of the difficulties of introducing commercial incentives into Australian road provision here. (The immediately preceding post).

4 comments to Privatised roads

  • derrida derider

    Harry, people like the Mises organsiation are in the happy situation of inhabiting their own reality. It really is no use pointing out practical problems to them.

  • Network externalities exist with a lot of things… I hope you’re not calling for the nationalisation of all those industries. Facebook has network externalities. Phones, SMSing, e-mailing, popular music and house parties have network externalities.

    And local monopolies likewise are everywhere in life. Many suburbs have only one type of certain shops within a reasonable commute for many people. And while to some degree everything can be considered a substitute (because all are selling “utility”), in another sense, everything is slightly different (no two apple is quite the same, so the apple seller has a monopoly position with their one apple).

    If you want government involvement every time there is a local monopoly, network externality, or any of the other reasons you regularly use to justify your favourite government program of the day… then there is no logical reason you wouldn’t end up with a very large government sector. If a policy guide can be used to justify anything, that it is no good as a policy guide.

    This also raises the issue of why socialism didn’t work. I know that’s almost a “godwin” violation… but it’s a serious question and I think many people have lost touch with the answer.

    And the answer that “the market works best wherever Australia is currently using it, but it works badly wherever we’re not using it” is too convenient to take seriously. This represents the inherent conservative nature of all humans, but that is not a guide to the truth.

    The reality is that no market is perfect, and every action you take creates multiple externalities. While the theory of perfect competition can (in my opinion) serve a useful purpose, to the degree that people take it too seriously it is damaging to the way people think about economic policy. It makes more sense (in my opinion) to consider which set of institutions best fix the economic problem over time. This takes us to the “knowledge coordination” problem that Hayek was so good at answering.

    Following excuses that can be made for anything that is convenient will not take us closer to the truth. It just allows us to justify whatever we want to justify.

  • hc

    Agree “Network externalities exist with a lot of things”. Same with local monopolies. My attitude is that you live with the minor deadweight losses such facts raise – regulating is costly and so impractical it will be destructive.

    But with roads the network effects are intractable and complex. The informational requirements for purely private provision are impossible but you can make supplies respond to market signals if you introduce user charges on congestion/road damages and then allow road providers to borrow against expected revenues.

    Roads are not like “bubblegum” and “beer”.

  • Beer is more socially useful than roads. And bubblegum should be banned. But that’s a different point. 🙂

    I don’t mind if road providers borrow against expected future returns. Even if it is the government. However, I do think that debt repayments should only come from future returns, and not from general tax revenue. That way the projects will be appropriately risk-assessed, have an incentive for efficiency, and not get cross-subsidies from innocent train users & walkers. This also limits the ability of government to embark on boondoggles.

    I do think that there are plenty of unexplored private avenues for road provision. Not just toll roads, but also body-corp style arrangements and business groups who want to attract more customers maintaining nearby roads, and (as we’ve seen in America recently) advertisers making use of the blank canvass of roads. But that’s a bigger topic.